- 13 -
Petitioner's reliance on Rev. Rul. 91-31, supra, is also
flawed. In Rev. Rul. 91-31, supra, the taxpayer purchased an
office building for $1 million. In obtaining the purchase funds
from a third-party lender, the taxpayer executed a nonrecourse
note. When the building's value dropped to $800,000, and the
outstanding principal on the note was still $1 million, the
lender agreed to modify the terms of the note's principal amount
to $800,000. The Commissioner concluded that Commissioner v.
Tufts, 461 U.S. 300 (1983), and Gershkowitz v. Commissioner,
supra, required COI income to be recognized, pursuant to section
61(a)(12), to the extent the lender reduced the principal of the
undersecured, nonrecourse debt. Rev. Rul. 91-31, supra, is
distinguishable because the facts therein did not involve the
sale or exchange of the encumbered property.
Petitioner maintains that NCNB agreed to the discharge and
cash sale because it was in the bank's best interests rather than
as an accommodation to Briarpark. The fact that NCNB, as a
profit-oriented entity, acted for economic reasons and agreed to
the transaction herein is not a sufficient basis for altering the
character of the gain realized by Briarpark on the transaction.
Petitioner argues that the amount realized includes
nonrecourse debt only if the purchaser assumes that debt. In
support of his position, petitioner relies upon Commissioner v.
Tufts, supra; section 1.1001-2(a), Income Tax Regs; and section
1.1034-1(b)(4), Income Tax Regs. In Tufts, the Supreme Court
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